Fund commentary

Market Review
In the first quarter corporate bonds produced strong positive total returns and outperformed government bonds. The rally was driven by a variety of positive factors but most notably the European Central Bank's long-term repo operations. This bolstered market sentiment and had a particularly positive impact on bonds issued by the financial sector.

Fund Performance
The underweight position in peripheral financials cost the Fund as Italian and Spanish names enjoyed a strong rebound from depressed levels at the end of 2011. Our allocation to high yield, insurance and utility overweight boosted performance.

Fund Positioning
The Fund participated in a number of new issues taking advantage of the large premiums offered by companies relative to their outstanding bonds. These included EDF, ENI, the Danish Telecom company TDC and Luxottica. As part of the strategy to reduce exposure at the Fund level to peripheral Europe, the manager sold holdings in Dublin Airport Authority and Santander.